The Problem With Blaming Joe Cassano

In this week's Think Tank, I recommended people read Michael Lewis's account of the role that AIG's Financial Products division played in the economic crisis. I stick by that recommendation: As happens every time Lewis touches pen to paper, it's a gorgeously clear narrative explaining a terrifically complicated subject.

But it's about six months too late. It reads like it's from the early period of the crisis, when financial journalism was still trying to figure out what happened, rather than the more recent months, when reporters are trying to add to our understanding of why it happened, and how to stop it next time.

Lewis's column is anchored by a villain: Joe Cassano, the dimwitted, bullying head of AIG's FP unit who didn't understand the subprime risk he had assumed and believed fiercely, almost poignantly, that it was all perfectly safe. To hear Lewis tell it, Cassano fell asleep at the switch and the rest of economy awoke to find itself in his nightmare. The financial crisis, says Lewis, "may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees."

It might be true that Cassano wasn't as sharp-witted as the mathematically-inclined "quants" who Lewis implies would have better read the models and averted the catastrophe. But the question is not how one man could have failed to correctly interpret the underlying risks of the credit default swap market. The question is how the system could have let the judgments of one man -- or even one company -- matter so much. Cassano's inadequacies may be, in retrospect, surprising, but they will not prove, in the long sweep of history, unique. A financial system that is not robust enough to withstand a bad boss is a financial system that is not robust enough, full stop.

While the article does paint a fiercely negative protrait of Cassano, the factual case against him seems thin - he moved AIG away from the subprime risk two years before it blew up, and others took his place. That means that he wasn't the worst culprit, nor obviously was he the only one.

Interesting that not one person at AIG stood up and said "Perhaps we should look into these mysterious debt instruments before we decide to insure them."

The question I have - how is it that in an industry filled with the best and brightest that Harvard has to offer, not one person raised a question about any of the questionable business practices that led to the massive collapse of our economy?

And the consequences of all this risky behavior? Today, we're seeing GS on track for record profits and record bonuses this year.

And the folks at AIG are awaiting the disposition of their bonuses - will Congress approve them?

Since we all know that Wall Street owns Washington, I'm sure the talented team at AIG will be amply rewarded for the risky behaviors that took down their company - and the economy with it.